Mortgage

Lawsky demands answers about Ocwen, Altisource and Hubzu

Letter comes days after Ocwen CEO says Lawsky holding up MSRs

Things are heating up in the conflict between New York's top bank regulator and Ocwen Financial Services (OCN), the nonbank that's become a lightning rod for regulatory intervention in the fast-growing nonbank MSR segment.

The superintendent of New York State’s Department of Financial Services sent a letter Monday to the general counsel of Ocwen, walking through specific concerns and questions the banking regulator has for the nonbank.

DFS Superintendent Benjamin Lawsky has eight primary questions for Ocwen’s general counsel, and he wants them answered by April 28.

Emails to Ocwen’s media relations department were not returned by publication time.

Lawsky’s move comes just four days after Ocwen CEO Bill Erbey said that Lawsky’s indefinite hold on the $2.7 billion MSR deal between Ocwen and Wells Fargo (WFC) has put a freeze on all MSR deals in the market. Erbey made the statement during the conference call for Home Loan Servicing Solutions (HLSS) first-quarter earnings.

“Until we resolve – this relates to Ocwen – until we resolve New York State we’re not acquiring any new (MSR) portfolios at all. As a matter of fact the entire market – nothing is being put out for bid right now,” Erbey said. “The whole market has stopped until that gets resolved.”

This is the second letter from Lawsky’s office to Ocwen seeking specific answers to broad questions about the company and its relations with affiliates. Lawsky’s office is putting a critical eye to the increasing role of nonbanks seeking MSRs.

Lawsky’s latest letter, a copy of which can be read or downloaded here, says that his office is looking at the relationship between Ocwen and Altisource Portfolio, and Altisource Portfolio’s subsidiary, Hubzu, which Ocwen uses as its principal online auction site for the sale of its borrowers’ homes facing foreclosure, as well as investor-owned properties following foreclosure.  

“Hubzu appears to be charging auction fees on Ocwen-serviced properties that are up to three times the fees charged to non-Ocwen customers. In other words, when Ocwen selects its affiliate Hubzu to host foreclosure or short sale auctions on behalf of mortgage investors and borrowers, the Hubzu auction fee is 4.5%; when Hubzu is competing for auction business on the open market, its fee is as low as 1.5%. These higher fees, of course, ultimately get passed on to the investors and struggling borrowers who are typically trying to mitigate their losses and are not involved in the selection of Hubzu as the host site,” the letter states.

“The relationship between Ocwen, Altisource Portfolio, and Hubzu raises significant concerns regarding self-dealing. In particular, it creates questions about whether those companies are charging inflated fees through conflicted business relationships, and thereby negatively impacting homeowners and mortgage investors,” Lawsky writes. “Alternatively, if the lower fees are necessary to attract non-Ocwen business on the open market, it raises concerns about whether Ocwen-serviced properties are being funneled into an uncompetitive platform at inflated costs.”

Generally, Lawsky is seeking to find out how Hubzu operates, how much of Ocwen’s REO and short sales are listed on Hubzu, how Hubzu determines and charges fees, and other details on Hubzu and other subsidiaries.

For the eight questions Lawsky has, click below.

Following are the eight questions in the letter from the Department of Financial Services to Ocwen Financial Services.

  1. It appears that a substantial portion of Ocwen’s REO and short sale properties are marketed on Hubzu. Are investors and homeowners required to use Hubzu to market short sale and REO properties? What percentage of Ocwen-serviced REO and short sale properties is or has been listed or marketed on Hubzu (broken down by GSE, Agency, and Private Label)? What percentage is listed elsewhere and not on Hubzu?    
  2. Does Ocwen use any online auction site other than Hubzu? What percentage of Ocwen’s online auction sales are on Hubzu, and what percentage are on another site?
  3. It appears that the vast majority of Hubzu listings are of Ocwen-serviced properties. What percentage of Hubzu’s listings is serviced by Ocwen?  What percentage is non-Ocwen, i.e. open-market?
  4. Hubzu appears to charge a $299 technology fee. Is this fee charged on all Hubzu listings, regardless of whether the property is serviced by Ocwen and whether it is REO, short sale, private sale, etc.? What services are covered by this fee? What is the estimated actual cost to Hubzu for providing these services? Is any portion of this fee remitted directly or indirectly either to Ocwen, to another affiliate of Hubzu, or to an unaffiliated entity?
  5. Please confirm that Hubzu charges a 4.5% auction fee on auctions of properties serviced by Ocwen and a 1.5% to 3.5% fee on auctions of properties not serviced by Ocwen. What services are covered by this fee? How do these services differ from those covered by the technology fee? What is the estimated actual cost to Hubzu for providing these services? Is any portion of this fee remitted directly or indirectly to Ocwen, to another affiliate of Hubzu, or to an unaffiliated entity?
  6. Please confirm that each Ocwen REO or short sale listing on Hubzu includes an additional 3% seller’s agent fee. What services are covered by the seller’s agent fee? How do these services differ from the technology fee and the auction fee? Does Ocwen, Hubzu, or an affiliated entity receive, directly or indirectly, any portion of the seller’s agent fee?  
  7. It appears that a single real estate agent employed by REALHome Services and Solutions, Inc., another subsidiary of Altisource Portfolio, is listed as the seller’s agent for hundreds of properties located in New York – more than half of Ocwen’s New York listings on Hubzu. This agent, whose calls are routed to a call center in another country, is based in Massachusetts, hundreds of miles away from the properties he is responsible for marketing. How does Ocwen or Hubzu select the seller’s agent? What is the relationship, if any, between Ocwen or Hubzu and the seller’s agents selected by Ocwen or Hubzu? Please identify the five seller’s agents or agencies that Ocwen uses most for New York properties and indicate the following:  (a) the location where such agent or agency is based, (b) how many Ocwen loans have been handled in the past year and are currently being handled by such agent or agency, (c) in the case of an agency, how many agents at such agency are assigned to Ocwen loans, (d) on average how many person-hours each agent or agency spends on each sale, (e) the average number of properties each agent is tasked with marketing, (f) the highest number of properties any one agent is tasked with marketing, (g) the approximate cost to the agent or agency of providing the services of the seller’s agent, and (h) if any such agent or agency is based more than 100 miles outside of New York, the distance between the agent and the property, what expertise such agent has in the local real estate market, what if any in-state or on-location services are provided by the agent, and how such services are performed given the physical distance between the agent and the property.
  8. Please confirm that each Ocwen REO or short sale listing on Hubzu includes an additional 3% buyer’s agent fee. What happens to this fee if the buyer is not represented by an agent?  

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